1 shareholder information meeting radisson penn harris hotel & convention center, camp hill,...
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Shareholder Information Meeting
Radisson Penn Harris Hotel & Convention Center,
Camp Hill, Pennsylvania,
Tuesday, December 1st, 2009
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This document contains certain “forward-looking statements” within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Exchange Act of 1934, as amended, regarding the belief or current expectations of the Group, AIB’s Directors and other members of its senior management about the Group’s financial condition, results of operations and business of the Group and certain of the plans and objectives of the Group, including statements relating to possible future write-downs or impairments. In particular, certain statements with regard to management objectives, trends in results of operations, margins, risk management, competition and the impact of changes in Financial Reporting Standards are forward-looking in nature. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward looking statements sometimes use words such as ‘may’, ‘could’, ‘would, ‘will, ‘aim’, ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding the Group’s future financial position, income growth, business strategy, projected costs, capital position, estimates of capital expenditures, and plans and objectives for future operations. Because such statements are inherently subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking information.
These forward-looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside the control of AIB and are difficult to predict, that may cause actual results to differ materially from any future results of developments expressed or implied from the forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied include, but are not limited to, changes in economic conditions globally and in the regions in which the Group conducts its business, changes in fiscal or other policies adopted by various governments and regulatory authorities, the effects of competition in the geographic and business areas in which the Group conducts its operations, the ability to increase market share and control expenses, the effects of changes in taxation or accounting standards and practices, acquisitions, future exchange and interest rates, the risk that the Group may not participate in NAMA or that the NAMA Scheme may turn out to be unsuccessful in achieving its goals, the lack of control over the nature, number and valuation of the assets to be transferred to NAMA and the success of the Group in managing these events.
The Group cautions that the foregoing list of important factors is not exhaustive. Investors and others should carefully consider the foregoing factors and other uncertainties and events when making an investment decision based on any forward-looking statement. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Report may not occur. The forward-looking statements speak only as of the date of this document. Except as required by the Irish Financial Regulator, the Irish Stock Exchange, the UK Financial Services Authority, the London Stock Exchange or applicable law, AIB does not have any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, further events or otherwise. AIB expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this document or incorporated by reference to reflect any change in AIB’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
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Forward looking statements
The following commentary is on a continuing operations basis. The growth percentages (excl. EPS) are shown on an underlying basis, adjusted for the impact of exchange rate movements on the translation of foreign locations’ profit and excluding interest rate hedge volatility.
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Major events for AIB; September 2008 – December 20092008
September Introduction of Irish Government Guarantee
December Irish Government initial announcement on recapitalisation of Irish banks
2009
January Nationalisation of Anglo Irish Bank; Market concerns re Irish sovereign
February AIB & Irish Government announce a €3.5bn recapitalisation by way of Core Tier 1 preference shares
March Nil final dividend for 2008 recommended
April Irish Government announces National Asset Management Agency (NAMA)
AIB announces retirement of CEO, CFO and appointment of new Chairman
June Successful capital exchange offer, boosting equity capital by c. €1.1bn
September Minister for Finance outlines NAMA terms AIB announces intention to raise additional capital over 12-18 months timeframe
November Restructuring plan submitted to European Commission Enactment of NAMA legislation Senior management changes at AIB
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Tough economic conditions
Ireland Good initial progress in improving competitiveness, exports outperforming Difficult budget decisions must continue to be made Overdependence on construction rapidly diminishing Unemployment continues to increase; expected to average c.13.6% in 2010
Ireland -7.7 -2.5
UK -4.4 1.0
Poland 0.5 1.5
Eurozone -4.0 1.0
US -2.6 1.9
World -1.1 3.1Source: AIB ERU Forecasts
% volume 2009 f 2010 f
GDP
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Major changes have materially affected AIB Lower demand for loans
Increased cost of deposits / funding
Liquidity severely curtailed
Significant increase in forecast 2009 bad debts charge
Mar 09 €2.9bn
May 09 €4.3bn
Aug 09 €4.3bn+
Nov 09 €5.3bn
NAMA transfer - €24bn identified by Minister for Finance; discount yet to be finalised
Potential impact of European Commission restructuring plan, not yet known
Adjusted basic EPS H1 2009 (164.4c)
ADR US$5.20 (on Nov 26th 2009)
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Operating performance €1.1bn* underlying pre-provision profit in H1 2009; €2bn* forecast for full year 2009 Performance driven by
Diverse multi-national sources of income underlining importance of international diversification Continued downward trend in costs
Loan and deposit volumes Weak loan demand, 2009 gross customer loans to be broadly in line with 2008 Deposit stability continues; full year balance expected to increase over half year level in 2009 Credit current account volumes stabilised since Q1
Net interest margin NIM attrition of c. 25bps expected in 2009 from 221bps in 2008 Driven by cost of customer deposits, partly offset by improving returns on loans and higher
treasury margins Other income
Non- interest income expected to reduce by over 10% in 2009, mainly attributed to lower fees from banking activity, investment banking, asset management and cost of the government guarantee partly offset by some bond disposals
Costs Cost reductions to continue, targeting further decrease of 5% for 2009 Staff numbers reduced by 1,500 in 9 months to September
* excludes capital exchange offer
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Criticised loans - definitions
Watch
Credit exhibiting weakness but with the expectation that existing debt can be fully
repaid from normal cashflow
Vulnerable
Credit where repayment is in jeopardy from normal cash flow and may be
dependent on other sources
Impaired
A loan is impaired if there is objective evidence of impairment as a result of one or
more events that occurred after the initial recognition of the assets (a “loss event”)
and that loss event (or events) has an impact such that the present value of future
cash flows is less than the current carrying value of the financial asset or group of
assets i.e. requires a provision to be raised through the profit and loss
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Credit deterioration
Criticised loans increased by €17.9bn to June 09. AIB Bank RoI accounts for c. 75% of this increase, with AIB Bank UK 15%, Capital Markets 5% and CEE 5%. H2 increase to be significantly less
Weakening trends evident across portfolios / sectors
Property & construction sector 72% of H1 increase
6531 7394 817211190 12269 14023 140872250 2816
4302
887310565
10233 8503
1720
2991
4203
47567128 10804
1440
0
5000
10000
15000
20000
25000
30000
35000
Jun Sep Dec Mar Apr May Jun
Watch Vulnerable Impaired2008 2009
Total criticised by value €m
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Specific % of IBNR % of Total % ofProvision Avg Provision Avg Provision Avg
P&L Advs P&L Advs (P&L) Advs€m % €m % €m %
AIB Bank RoI 1,794 4.65 117 0.30 1,911 4.95
Capital Markets 171 1.31 30 0.23 201 1.54
AIB Bank UK 188 1.79 0 0.00 188 1.79
CEE 58 1.38 15 0.36 73 1.74
Group Total 2,211 3.33 162 0.25 2,373 3.58
Credit charges – H1 2009
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Specific IBNR % of Total % ofImpaired % of Provision Provision Earning Provision Impaired
Loans Advs (B/S) Cover (B/S) Advs (B/S) Loans€m % €m % €m % €m %
AIB Bank RoI 8,516 10.9 2,439 29 1,018 1.46 3,457 41
Capital Markets 667 2.6 282 42 50 0.20 332 50
AIB Bank UK 1,220 5.6 342 28 166 0.81 508 42
CEE 401 4.7 167 42 84 1.05 251 63
Group Total 10,804 8.1 3,230 30 1,318 1.07 4,548 42
Balance sheet provisions – June 2009
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€m ROI UK CM Poland Group
Commercial Investment 10,889 3,562 5,199 1,245 20,895
Residential Investment 2,407 1,317 483 36 4,243
Commercial Development 6,182 685 375 704 7,946
Residential Development 10,877 3,154 413 599 15,043
Contractors 674 334 41 140 1,189
Balances 31,029 9,052 6,511 2,724 49,316
Property & construction – sub sector profile June 2009 *
* an element of management estimation has been applied in this sub-categorisation** excludes €0.6bn in Housing Associations
**
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Asset quality update*
Deterioration continues; pace slowing
Bad debt charge heavily weighted to loans identified for potential transfer to NAMA and predominantly in the Republic of Ireland
Some stabilisation in RoI “non-NAMA” loans; no material increase in provision requirement since H1 2009
International portfolios - impaired loans & bad debt charges higher than previous years reflecting more difficult conditions in all markets
Prudent balance sheet provisions
Provision charges expected to be lower in Capital Markets & CEE and
broadly similar in UK in H2 2009 relative to H1 2009
* per Interim Management Statement
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National Asset Management Agency (NAMA) – an overview
Asset exchange programme, primarily RoI and UK property portfolios
Quantum of loans to be transferred and asset values not yet finalised
c. €17bn land & development and c. €7bn “associated” loans may transfer
Transfers to be phased over 2010
Valuation on a bottom up, case by case basis
Capital position and pre-provision operating profit will both be significantly
influenced by NAMA outcome
To be considered by shareholders at EGM on 23rd December
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Loans that may transfer to NAMA
Landbank & Development Associated Total€bn €bn €bn
Republic of Ireland 14.2 6.4 20.6
United Kingdom 2.6 0.7 3.3
Rest of world 0.2 - 0.2
17.0 17.1 24.1
Performing at 30th June 2009 c. 17.4
Impaired at 30th June 2009 c. 6.7
Forecast performing at 31st December 2009 c.13.6
Forecast impaired at 31st December 2009 c.10.5
Balance sheet provisions at 30th June 2009 c. 2.3
Forecast balance sheet provisions at 31st December 2009 c. 4.2
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Capital position H1 2009
8.5%
4.25%
10.7%
7.8%
Total capital ratio
Tier 1 ratio AIB
AIB
Regulatory min.
Regulatory min.
Capital ratios strengthened by €3.5bn Government investment and €1.1bn gain from the capital exchange offer
Capital ratios above regulatory requirements
NAMA effect to emerge over coming months
Continuing to actively consider a range of potential sources of additional capital; firm resolve to strengthen capital position
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Potential sources of capital
Equity markets
Strategic investment
Asset sales / business disposals
Government commitment to assist and support
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AIB’s funding diversity - September 2009
Stable customer deposits – 50%
Wholesale funding – 40%
Capital – 10%
Wholesale market liquidity has significantly improved
Some pricing improvement; conditions remain more challenging than historic norms
NAMA bonds will be a further significant boost to liquidity
Recent raising of €1.75bn unsecured unguaranteed term funding
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Extraordinary General Meeting (EGM)
EGM to be held on December 23rd at 11:00 GMT in Dublin
Proposals:
To approve AIB’s participation in the NAMA Programme
To permit AIB to convene certain shareholder meetings on 14 days notice
Timetable:
Dec 9th Mailing of proxy material to ADR holders begins
Dec 18th Voting cut off date
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AIB Bank Republic of Ireland
Loss before tax (€1,522m) in H1 2009 driven by steep increase in bad debts
Income pressure, particularly cost of deposits are key drivers of reduced
operating profits
Developing our franchise by supporting customers and the economy
c. 42,000 credit facilities, €1.85bn extended to SMEs Jan – Oct 2009
8 out of 10 SME credit enquiries are approved (independent customer research)
Opening 15 dedicated SME business centres nationwide
Providing 1 in 3 of all mortgages, up from 1 in 6 a year ago
Zero forced repossessions of owner occupied homes
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Profit before tax 13% to €252m in H1 2009 due to increased bad debts (lower bad
debt charge expected in H2 2009 vs H1 2009)
High income growth combined with aggressive cost management
Global Treasury; delivering strong profit growth Well chosen market positions, delivering continuing profits
Improving margins in customer business; well placed to benefit in higher demand
environment
Corporate Banking; strong risk management Focus on de-leveraging balance sheet, margins improving
Impaired loans spread across geographies / sectors
Franchises well placed for recovery in corporate demand
Investment Banking; lower customer activity Lower income from asset management and investment banking activities
Costs reduced in low revenue environment
Capital Markets
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Loss before tax (£28m) in H1 2009 due to increased bad debts charge driven
by property market downturn
Strong management action in low income environment Intense focus on cost control Better loan prices; improving margins Higher deposit and funding costs
Great Britain Profitable business banking franchise despite severe economic conditions Weak demand for credit; deposits stabilised (Q1 deposit outflow now stemmed) Increased provisions due to deterioration in property & construction with some
contagion to other business sectors
First Trust Bank (Northern Ireland) Increased provisions largely driven by property & construction sector and
landbank lending in particular
AIB Bank United Kingdom
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Poland
Franchise investment coincided with significant economic downturn; 514 branches include 145 added since H2 2007
Targeting small increase in loans in 2009 Higher margins in personal market
Deposits stabilised
Improving trends in asset management & brokerage
Increased provisions across all sectors, particularly property and cash loans
Strong liquidity, loan / deposit ratio 85%,
Larger, well developed franchise set to outperform in next Polish growth phase
Remainder of CEE Division
BACB: value impairment of €45m in H1 2009
AmCredit: continued deterioration in Baltic mortgage market
Central & Eastern European (CEE) Division
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M&T
Strong outperformance continuing – M&T is one of only 3 peer banks to
report a profit in every quarter of 2007, 2008 and 2009
Underlying EPS $.98c in Q3, 24% on Q2
Q3 core deposits 18% annualised (ex 2009 acquisitions)
Net interest margin to 3.61% in Q3
Improved fee income and strong residential mortgage banking revenues
Provident Bankshares Corporation acquisition completed – accretive in Q2
Careful and conservative risk management
Second highest coverage ratio among peers, while maintaining the lowest ratio of net charge-offs to average loans
€200m impairment charge to AIB investment in H1 2009
* diluted net operating earnings per share
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Summary
Material deterioration in AIB’s condition over past 18 months
Our decisions accentuated a very challenging banking environment
Irish State an important source of support
NAMA and European Commission restructuring plan will alter the shape
of AIB
Further cost reductions required in low income environment
Firm resolve to rebuild AIB’s business and shareholder value
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Contacts
+353-1-660 0311
+353-1-641 2075
Alan Kelly [email protected] +353-1-6412162
Rose O’Donovan rose.m.o’[email protected] +353-1-6414191
Pat Clarke [email protected] +353-1-6412381
Maura Hodnett [email protected] +353-1-6413469
Our Group Investor Relations Department will be happy to
facilitate your requests for any further information
Visit our website www.aibgroup.com/investorrelations